Significant advances in the fintech industry frequently introduce innovative new technology for payment methods, providing consumers and businesses with several cashless payment methods to consider.
While cash payments are still in use, we are closer to becoming a cashless society than ever before. With so many payment options available, small and medium-sized businesses are able to implement a variety of payment methods—offering secure and convenient solutions to their customers.
This post is dedicated to explaining cashless payments: what they are, the pros and cons, and how to implement them.
What are cashless payments?
Plainly stated, cashless payments include any mode of payment outside of paper or coin currency. While this term technically includes instruments like the paper check and money orders, in modern payments discourse, “cashless” is synonymous with “digital payments,” which we will focus on. Paper checks and money orders are often excluded from this category due to their manual, non-real-time processing nature.
Cashless vs contactless payments: What is the difference?
While sometimes used incorrectly and interchangeably, cashless transactions differ from contactless payments.
Contactless payments are specifically defined as transactions processed using near field communication (NFC) or Radio Frequency Identification (RFID) technology, where a physical card or mobile device is tapped against a terminal (e.g., Tap to Pay). Conversely, ecommerce transactions fall under the category of card-not-present (CNP), which is also a cashless method, but is not a contactless payment.
Essentially, all contactless payments are cashless, but not all cashless payments are contactless.
What are the different types of cashless payments?
The list of cashless payment options continues to grow as new technology is created and consumer demand increases. Below are some of the most popular cashless payment options available.
Credit and debit cards
Unless you’re a truly cash-only business, accepting debit and credit cards is a standard for any sized business. This is the most frequently used and widely accepted cashless payment option available.
While credit cards have been in use for decades, another trend has emerged related to card payments: contactless credit and debit cards. Tap to Pay is widely available, and many newly issued cards are enabled with this technology.
One note of consideration is that while many businesses already accept credit and debit cards, the payment terminal needs to be enabled with contactless payment technology—meaning it may be time to upgrade hardware, or even your payment processor, if you don’t currently support contactless pay.
ACH
For some businesses, accepting ACH payments can result in lower processing fees than credit cards and is a great option for recurring payments. This cashless payment option is completed through the Automated Clearing House network and processed by transmitting bank routing and account information between the payor and business.
This payment method is already widely in use, as this is the same Automated Clearing House (ACH) network that over 93% of US workers use to receive their payroll via direct deposit (an ACH credit). While not necessarily appropriate for a small retail business, this payment method makes a lot of sense in sectors such as legal, healthcare, and more.
Checks
Paper checks, while antiquated, are still widely used and are a cashless payment option. There are a number of downsides to accepting paper checks, including increased risk to the business and delayed processing time.
Mobile wallets
Mobile wallets have gained popularity in recent years, even more so since the pandemic caused a surge in demand for contactless options. Also referred to as digital wallets, this payment method connects the user’s credit and debit cards to an e-wallet which can be used for ecommerce or near-field communication transactions (using the same technology as Tap to Pay). Another feature of mobile payments is the security—payments made through mobile wallets rely on tokenization and dynamic cryptograms, making them inherently more secure than standard card swipes and protecting the user’s actual card number.
Cryptocurrency
As the cryptocurrency market continues to grow, there is a lot of information to keep track of. Crypto payments have increased significantly in recent years, with some payment apps like PayPal integrating cryptocurrency trading and payments into their app. Additionally, crypto payments are accepted at some major corporations such as Expedia and Microsoft. While this may not be ideal for small-to-medium-sized businesses today, it is important to note that many payment processors are now offering simplified crypto-to-fiat conversion at the POS, allowing merchants to accept crypto without holding the volatile asset themselves.
Payment apps
Payment apps, like Venmo, Cash App, PayPal and Zelle, are another convenient way to accept payment, both online and in person. While many started as peer-to-peer (P2P), services like Venmo and Zelle now offer separate, compliant business profiles with defined fee structures, allowing merchants to accept payments legally and professionally, separate from personal accounts.
Payment apps/digital wallets like PayPal, Amazon Pay, and Shop Pay are extremely popular for ecommerce transactions. Apple Pay and Google Pay (when used online) leverage the same secure tokenized process as in-person Tap-to-Pay transactions.
Buy Now, Pay Later
Buy Now, Pay Later (BNPL) is a cashless payment option that allows customers to spread their payments into installments, often requiring only a soft credit check or none at all for smaller purchases.Popular apps include Afterpay and PayPal.
Depending on the BNPL provider, there are varying terms for purchase, but this is an excellent cashless option to increase the bottom line—in fact, a recent McKinsey survey found that 29% of BNPL users would have made a smaller purchase, or none at all, if this was not offered.
Pros and cons of cashless payment systems
Any business owner looking to evaluate payment options needs to consider the pros and cons of which cashless payment options to offer to their customers. Below is a list of some of the pros and cons to consider.
Pro: Reduced operational costs
Cashless operations eliminate costs associated with armored car services (cash-in-transit or CIT), manual cash reconciliation, bank deposit fees, and shrink from theft or errors.
Pro: Cashless transactions can shed valuable insight
One advantage of cashless transactions is the data provided, allowing businesses to make more informed decisions. Unlike cash, digital and electronic can shed light on a wealth of information. You can link cashless transactions to customers or customer groups, as well as analyze payment volume by time period or payment type.
Payment analytics solutions, like those provided by Stax, help businesses stay on top of trends, keep close tabs on essential metrics, and make data-backed decisions.
Pro: Increased efficiency during checkout
Some of the more popular cashless payment options are incredibly simple and fast to process. Consumers today seek out convenient and safe ways to make their purchases, and offering several options not only makes a customer more likely to purchase, but it’s often faster than traditional payment methods.
Con: Some businesses may struggle with the technological learning curve
Not every business or customer base is going to quickly adapt to cashless options. While the basics of debit and credit cards are commonly known, newer forms of payment, like mobile wallets or payment apps, may not be as easily adopted. With any new technology, there is a learning curve for both the business and the customer.
Con: Businesses cannot accept cashless payments if there is an outage
While businesses can implement a variety of cashless options, if there is a system outage, cash is the failsafe option. If a business chooses to go completely cashless, internet failures or technology issues means they may struggle to safely accept payment during an outage. To mitigate this, businesses should use systems that offer offline processing capabilities to securely capture card data and process transactions once connectivity is restored, minimizing lost sales during brief outages.
Con: Processing fees
While cash involves no processing fees, digital payment systems (cards, ACH, BNPL) all involve fees. These costs, however, are typically offset by the increased sales, reduced handling costs, and minimized risk of theft associated with not handling large amounts of cash.Sometimes these fees can be mitigated—for example, credit card surcharging is one way to offset the costs of card processing. It is crucial to note that credit card surcharging is heavily regulated and prohibited in some US states, and it requires explicit disclosures to remain compliant with card network rules.
Ready to implement cashless payments?
Any size business—whether operating primarily as ecommerce, hybrid or primarily brick-and-mortar—needs a payment processor that is reliable and meets the demands of the business.
To implement cashless payments in your business, the first step is to choose a processor that is payment card industry (PCI) compliant and able to meet the hardware and software needs of your business. Stax can help your business accept a variety of contactless and cashless payment options.
FAQs about implementing cashless payments in your business
Q: What are cashless payments?
Cashless payments refer to any payment method that does not involve the use of physical cash. This includes modes like credit and debit cards, checks, mobile wallets, cryptocurrencies, payment apps, and others.
Q: What is the difference between cashless and contactless payments?
Cashless payments include all forms of payment that do not involve physical cash. Contactless payments, on the other hand, are transactions processed in a way that removes physical interaction between the purchaser and the merchant. While all contactless payments are cashless, not all cashless payments are contactless.
Q: What are the different types of cashless payments?
There are several types of cashless payments, including credit and debit cards, Automated Clearing House (ACH) payments, checks, mobile wallets, cryptocurrency payments, payment apps like Venmo and PayPal, and Buy Now, Pay Later (BNPL) options.
Q: What are the pros and cons of implementing cashless payment systems?
The advantages of cashless payment systems include potential revenue increase, valuable customer insights, and improved checkout efficiency. However, they also present challenges, such as the technological learning curve for some businesses and customers, reliance on systems that can experience outages, and transaction fees associated with non-cash payments.
Q: How can a business implement cashless payments?
To implement cashless payments, a business needs to choose a payment processor that is Payment Card Industry (PCI) compliant and can meet the hardware and software needs of the business. The business should also consider the various cashless payment options available and choose those that best suit their operations and customer preferences.
Q: What are the security considerations for cashless payments?
Security is paramount when implementing cashless payments. Some options, like mobile wallets, offer two-way encryption for secure transactions. It’s important to choose a PCI-compliant payment processor like Stax and to stay informed about potential security risks and solutions.
Q: What are some popular cashless payment apps?
Popular cashless payment apps include Venmo, Cash App, PayPal, and Zelle. These apps allow for convenient online and in-person payments and are being increasingly implemented into point-of-sale systems.
Q: How can cashless payments increase business efficiency?
Cashless payments can increase efficiency by speeding up the checkout process, reducing the need for handling and managing physical cash, and providing valuable data for business analysis and decision-making.
Q: How does the Buy Now, Pay Later (BNPL) cashless option work?
BNPL is a cashless payment option that allows customers to spread their payments into installments without a credit check. This option can potentially increase a business’s bottom line by encouraging larger purchases.
Q: Are there any fees associated with cashless payments?
Yes, most non-cash transactions come with fees associated with payment processing. The specific fees can vary depending on the payment processor and the type of cashless payment method used.
